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Top Lessons to Learn for Google Antitrust Enforcers -- Part 8 Google Unaccountability Series

Antitrust law enforcement investigating Google have five top lessons to learn.

FTC: "You broke it. You fix it." The FTC's approval of Google's acquisition of DoubleClick tipped Google to monopoly and created most of the current Google antitrust problems.

FTC: "Fool me once shame on you. Fool me twice shame on me." The FTC fell for Google's deception that Apple iAds would prevent Google-AdMob from dominating mobile advertising. Don't fall for the Google line that Facebook and Apple will beat Google at search.

EU: "Remember who you work for." A Google global settlement beyond the EU is in Google's interests, not the interests of EU citizens because it predictably would water down enforcement to the lowest common denominator and effectively protect Google from any private right of action.

U.S. State AGs: "To get respect, demand respect." Google ignores state law enforcement officials, because they get away with it. State AGs should hold firm on principle and not concede to Federal Google antitrust settlements that allow Google to buy their way out of accepting responsibility and liability for their unlawful behavior, and to undermine state law enforcement and consumer protection.

All: "Wrongdoing has consequences not of one's own choosing."Google's entire settlement strategy is to trade what doesn't matter to them, money, labeling and oversight, for the overriding thing that matters to them, preserving user trust, by not admitting or taking legal responsibility for any deceptions or anti-competitive behavior that harms users.

"Actions speak louder than words." Why does Googlebreak so many laws? Because it has learned over many years that it can get away with it, at minimal cost and great benefit to Google. To date Google's legal strategy of "stonewall, settle, and suppress" has worked well to protect the Google brand and keep most of Google's users, advertisers and publishers in the dark about Google's deceptive, unfair and anti-competitive business practices.

Below is a detailed discussion of the "lessons to learn" that are summarized above. There are lots of new connecting-of-the-dots insights below for those who want to better understand the overall Google antitrust enforcement dynamic here in greater richness, nuance and detail.

I.FTC: "You broke it. You fix it."

We all know the store sign: "You break it. You bought it." Or have heard the variation "You break it. You fix it." It is the time-honored principle of the expectation of taking responsibility for ones actions, which is central to law and order in civilized society.

In mid September, FTC staff reportedly will recommend to the FTC commissioners how to conclude the FTC-Google antitrust investigation per Bloomberg. The open question is: given that the FTC was demonstrably wrong that approving Google-DoubleClick would not tip Google to monopoly and was demonstrably wrong again that approving Google-AdMob would not let Google extend its desktop dominance into mobile -- will the FTC fix the antitrust problem it is largely responsible for creating?

Central to the FTC's current analysis of whether Google has anti-competitively abused its market power is determining how Google actually got its dominance/monopoly and whether or not that dominance is enduring.

Google is not a "natural" monopoly, it is an illegal-acquired monopoly, which is the exact type of monopoly that the Clayton Act Section 7 provision was put into law to prevent. In the U.S. under century-old antitrust law, it is not illegal to become a monopoly from offering a better product or service, but it is illegal to acquire a monopoly.

More specifically, it is unlawful to buy companies where "the effect of such acquisition may be substantially to lessen competition, or tend to create a monopoly." Simply, the FTC's failure to enforce the Clayton Act antitrust law in approving Google's acquisitions of DoubleClick and AdMob, created the Google Sherman Act and FTC Section 5 antitrust enforcement problem that they are dealing with today.

The FTC misunderstood what mattered in the marketplace in its review of Google-DoubleClick. Five years ago in my white paper, Googleopoly: The Google-DoubleClick Anti-Competitive Case, that I discussed with all of the FTC commissioners at the time, and in my follow-on testimony before the Senate Antitrust Subcommittee, I specifically warned the FTC what mattered in this proposed combination and warned them to not miss the proverbial forest for the trees.

The "forest" problem was that Google and DoubleClick were the only two companies in the world that each had a majority share of users, advertisers, and publishers and that no other company was even close to these two online advertising leaders' respective dominance. In the online advertising business, what matters is the absolute and relative reach of one's: user audience, advertiser client network and publisher network.

The acquisition of DoubleClick gave Google the ~25% of user audience that Google did not have, but DoubleClick did have, taking Google's global user reach from ~65% to ~90%. DoubleClick gave Google advertising client relationships with ~1500 of the largest global advertising clients that DoubleClick had, but Google did not, resulting in Google being the only company serving virtually all potential online advertisers. DoubleClick also gave Google ~30% of the global share of users' click data it did not have, resulting in expanding Google's global publisher reach to more than 90%. In addition, DoubleClick added 57% share of publisher tools to Google's 27% -- giving Google ~84% global publisher reach.

While the FTC analysis was myopically-focused on making the case, that if one looked closely at the bark and chlorophyll of search advertising "trees" they were different from display advertising "trees," when what the FTC should have discerned was that both kinds of trees burn if they come in contact with a monopoly forest fire.

In the five years since the FTC approved Google-DoubleClick, Google's anti-competitive dominance has prompted the DOJ to: threaten a Sherman Act monopolization case to block the proposed Google-Yahoo ad agreement; oppose the Google Book Settlement twice for being anti-competitive; and require a consent decree to mitigate the anti-competitive aspects of Google's acquisition of ITA. In addition, a Federal Court rejected the Google Book Settlement as anti-competitive. Moreover, Google has become embroiled in formal antitrust investigations on four different continents for online advertising anti-competitive behavior. Furthermore Google is under investigation by the U.S. and EU for anti-competitively abusing standards essential patents. This is the very messy aftermath of the FTC tipping Google to monopoly power in failing to enforce the Clayton Act in approving Google-DoubleClick.

Ironically and interestingly, in the enforcement case where the FTC fined Google $22.5 million this summer, the offending technology was a DoubleClick tracking "cookie" that Google used to hack into Apple's Safari browser and bypass Apple's security and users' privacy settings, in order to track Apple Safari users and serve them Google-DoubleClick ads inside the Apple ecosystem.

When the FTC closed its Google-DoubleClick 4-1 over the strong objections of FTC Commissioner Pamela Jones Harbour, the FTC promised: "We want to be clear, however, that we will closely watch these markets and, should Google engage in unlawful tying or other anti-competitive conduct, the Commission intends to act quickly."

Hopefully, the FTC's investigation, the FTC's staff recommendation, and the FTC Commissioners' decision will learn from their profound law enforcement mistake and fulfill their law enforcement promise.

II. FTC: "Fool me once shame on you. Fool me twice shame on me."

When Google proposed buying AdMob three years after buying DoubleClick, Google was #2 in the in-application mobile advertising segment with ~25% share and AdMob was the #1 provider with ~50% share.

In approving Google-AdMob 5-0 despite "serious antitrust issues," the FTC said this: "The decision was a difficult one because the parties are currently the two leading mobile advertising networks and the FTC was concerned about the loss of head-to-head competition between them. The Commission reached this decision based on important developments in the mobile advertising marketplace, particularly actions by Apple that should mitigate the anti-competitive effects of Google's AdMob acquisition." … "The Commission has reason to believe that Apple quickly will become a strong mobile advertising network competitor."

Two years later the facts are in, and the FTC's last-minute, linch-pin, market-prediction in its Google-AdMob decision has proved wrong.

eMarketer estimates that Apple iAd had an inconsequential 2.6% share in 2011 of the U.S. net mobile ad revenues and is expected to command only 2.8% share in 2012,while Google's share was 51% in 2011 and is expected to be 54% in 2012.

Moreover, eMarketer estimates Pandora will have the second highest share, 8.7%, after Google, Twitter with 5.0% and Facebook 2.9%.Furthermore, eMarketer estimated just this month that Google has95.4% of mobile search advertising share. Not quite the competitive mobile advertising marketplace that the FTC predicted with Apple's iAd entry.

In approving the FTC Google-AdMob acquisition, the FTC promised again: "Though we have determined not to take action today, the Commission will continue to monitor the mobile marketplace to ensure a competitive environment and to protect the interests of consumers."

Google fooled the FTC Commissioners with a self-serving argument and prediction that Apple's purchase of Quattro Wireless would make iAd a fierce mobile advertising competitor to Google-AdMob, when it was obvious to anyone who thought carefully about it, that Apple had no institutional aptitude for, or business model alignment with, online advertising that could make Apple a substantial competitor here.

In retrospect, it appears to have been a well-orchestrated political pretext and cover for the FTC to approve AdMob, not thoughtful standard antitrust analysis that generally does not try and make big speculative core predictions about how the marketplace will or will not evolve.

Learning that it was able to fool the FTC last time, expect Google to try and fool the FTC again by advancing the argument that Google can't be an enduring monopoly, if, Facebook might get into search per CEO Mark Zuckerberg, and if Apple may drop Google as the default search engine on the iPhone/iPad. The Washington Post is already pushing that Google meme in its post: "Could Facebook help Google's antitrust problem?" This meme is devoid of any analytical rigor or common sense.

"…Fool me twice shame on me." Core to the FTC's mistake that Google-DoubleClick was not anti-competitive was their assumption that Yahoo and Microsoft would be sufficient competition. The DOJ formally and effectively ruled that FTC assumption to be wrong in trying to help clean up the FTC's mess here, in taking the highly unusual step of approving the rare combination of a #2 Yahoo and #3 Microsoft to create a DOJ-approved search duopoly in a desperate attempt to try and create sufficient competition to Google. The result? Failure.

Google substantially increased its market share versus Microsoft Yahoo in the past year growing its annual search revenue base by 21% to $43b with $25b in gross profits. In stark contrast, Microsoft's annual search 2012 business grew 10% to $2.9b with a loss of $8.1b, while Yahoo's annual search revenues grew 4% to $1.5b. Simply, Microsoft-Yahoo's search business is one tenth of Google's and falling, and in Google's 2012 gross profit margin was 57% compared to Microsoft's search gross profit margin of -283%. Google is a search advertising monopoly.

After several years of trying, tens of billions of investment, and extraordinary help from the DOJ, Microsoft-Yahoo search continue to lose share to Google. Now Facebook, which has 10% the revenues and 25% of the cash of Google, and 6% of the revenues and 16% of the cash as Microsoft, is somehow going to become a competitive counterforce in two years to Google?

Facebook has enough of a challenge just growing its own revenues and profitability fast enough to satisfy its own very unhappy shareholders without imagining the multi-ten billion dollar long-term investment it would take to be a serious competitor to Google in search. Given that Google generated 250 million Google+ social users in just a year, Facebook should be conserving its resources to defend it own core business from Google, more than imagining a quixotic attack in search.

As for Apple potentially shifting its search default on iPhone and iPads to Bing, that would be significant benefit for Microsoft, but not a game changer for Google's dominance or the FTC's competitive assessment, because Google's mobile and Android revenues are still a small percentage of Google's monopoly search advertising revenues.

Moreover, in 2Q12 there are 4 Google-Android smart phones being shipped for every one iPhone. And hopefully the FTC has learned its lesson that since Apple iAd growth did not match their predictions in their Google-adMob decision, the better part of valor would be to not count on Apple shifting to Bing for the iPhone to mitigate Google's search advertising monopoly.

III.EU: "Remember who you work for."

A Google global antitrust settlement beyond the EU is in Google's interests, not the interests of EU citizens, because it very predictably would water down enforcement to the lowest common denominator.

Apparently Google shrewdly has managed to get the EU to think that it is their idea and in its interests to lead negotiations for a Global Google antitrust settlement. A global antitrust settlement is Google's idea because it is hugely in Google's self interest for many reasons.

First, they get the EU to do their leg work for them, on their behalf, and in a way that they never could do themselves. In other words, they get busy antitrust authorities to gather together in a process of Google's clever and deft orchestration, negotiating off on the same basic page, and conveniently largely on Google's terms.

Second and most importantly, any Global settlement would have a lowest common denominator element and water-down dynamic. That's because the EU's antitrust laws are much stronger than America's laws and other countries antitrust laws, with dramatically stronger process leverage. In the EU it is illegal to have a monopoly where it is legal in the U.S. In the EU only the Commission need decide on a Statement of Objections and it has the force of law; in the U.S. the process is much more limited by Constitutional separation of powers, so the FTC prosecutor must convince the FTC commissioners and a Federal Court of their case.

Simply, Google cleverly has created a dynamic where the EU will be negotiating against itself, to largely Google's benefit.

Third, Google has war-gamed this whole thing out and Google knows that a global settlement is a dynamic that is most easily influenced and controlled by Google.

That's because it makes the process more political, Google's strong suit, and less about law enforcement, the facts and competition, Google's weak suit. A global settlement dynamic also enables Google to play different entities against the other in the negotiations by highlighting their different laws, goals, and facts. This makes it harder to reach consensus on specifics and thus would yield a much-watered down settlement than the EU would get on its own.

From the FTC's standpoint, a Global Settlement dynamic embarrassingly would put the FTC in the uncomfortable position of looking like the junior antitrust enforcer, following the EU's antitrust lead in prosecuting an American-based company. That also would formally signal that competitors with anti-competitive concerns against American companies should view the EU as the go-to forum to get their complaints heard.

Fourth, Google knows that the more people/countries that are involved, the more complex and time-consuming the negotiation and review process is -- and consequently the shorter, simpler, and less strict the global settlement document would be.

Google knows that effective law enforcement requires getting most all the details right and this type of political process would naturally be short on details. Google could then slow-roll this complex process to foster impatience among law enforcement for action and thus force more of a willingness to concede to Google's hard-line positions.

So Google knows that complexity of process is their friend and the enemy of those who want strong enforcement and need redress from the final agreement and document. This is political negotiations 101.

Moreover, Google process complexity is better for Google, because Google has much better relative knowledge of the relative strength of different countries processes and cases and they know where they can gum up the works, to force weaker compromises. Simply, a global settlement dynamic is much easier to influence and force compromises than in traditional sovereign law enforcement processes that are familiar to law enforcement.

The old adage here is true. Who wins when the alligator and bear fight? It depends on whose turf they fight. As the most politically powerful multinational in the world, Google wants a Global antitrust settlement fight.

Finally also very important, in a Global settlement Google has more leverage to insist on not admitting guilt or liability for any wrong doing. It can negotiate a solution to its problems that it can live with, and can efficiently and conveniently manage the process to its strategic benefit. With a global settlement and no admission of guilt or liability, Google would effectively get the global players to effectively shut down the many other governmental and private lawsuits pending against Google, because their representatives would not be at the global settlement negotiating table.

Google most wants the Countries in a Global settlement to effectively indemnify Google from everyone else, for only the price of satisfying those in the negotiating room. Remember this is exactly what Google tried to do in the Google Book Settlement, i.e. try and force the class action global settlement to rule as force of law on parties that were not represented in the legal proceeding.

IV. U.S. State AGs: "To get respect, demand respect."

Google ignores state law enforcement officials, because they get away with it.

Thirty-six state Attorneys General know that Google ignored their concerns about how Google's new privacy consolidation policy could be a bait-and-switch harming of consumers in blowing off their request to meet with Google CEO Larry Page on the matter.

Thirty-eight state Attorneys General know that Google stonewalled their privacy investigation of Google's Street View's wanton wiretapping of tens of millions of Americans homes without consumers' knowledge or permission.

And all State Attorneys General know of Google's efforts to suppress incriminating evidence of antitrust violations, because the Texas Attorney General has had to go to court to compel Google to comply with its subpoena, because Google is suppressing evidence by claiming attorney-client privilege in a way any law student knows is a joke.

Apparently, Google's legal settlement strategy is to nullify state law enforcement by going over the heads of State AGs and private litigants and settle at the Federal level in such a way that effectively immunizes and indemnifies Google from private or state litigation, because it denies state and private litigants the findings and evidence their investigations have uncovered.

Central to their "stonewall, settle and suppress" legal strategy is to not have to admit guilt or liability, in order to minimize public knowledge and availability of incriminating evidence. If they can suck most of the air out of State and private cases, they know the efforts will likely suffocate and die.

Simply, it is not in the interest of consumers or State law enforcement for the FTC to settle with Google, if the settlement lets Google deny and evade complete responsibility or liability for its actions. State law enforcement should fiercely protect their effective jurisdiction and ability to protect consumers from deceptive and unfair behavior online by Google or others.

It is in the State AGs interest to support the court challenge of the FTC's "no-fault-little consequence" enforcement policy that allows repeat offenders of Section 5 deceptive and unfair practices to buy an effective pardon from accepting responsibility or liability for their unlawful behavior.

It is also in State Attorneys General interest to not be party to any potential FTC-Google antitrust settlement that absolves Google of any responsibility or liability, no matter how many headline-grabbing, billions of dollars in fines Google is willing to spend, to effectively cover up evidence of its wrongdoing from reaching the public.

Simply, State Attorneys General know that the first line of defense to protect consumers from deceptive and unfair business practices is disclosure and fair representation of consumer problems, so consumers can protect themselves.

Google's "stonewall, settle and suppress" legal strategy is all about ensuring that the vast majority of the public and Google's users are largely unaware of Google's many violations of law and users' trust. If Google gets away with short-circuiting this critical first line of defense consumer protection law by suppressing evidence of its wrongdoing, it wins and consumers lose.

If openness is a virtue Google expects openness from everyone else, why can't others expect Google to be open in a process that by law is supposed to be open?

V. All: "Wrongdoing has consequences not of one's own choosing."

Google's overall legal settlement strategy is to enable Google to effectively choose and control the consequences of their wrongdoing and avoid the law's statutory consequences, in order to pick their punishments, largely fines, labeling changes, or oversight, that they care little about and view as the cost of doing business, in trade for not admitting guilt or liability or materially changing how they do business.

Given the exceptional breadth of breadth of legal proceedings against Google, given its uniquely bad antitrust record, rap sheet, privacy rap sheet and systematic pattern of theft for a Fortune 100 public company, what matters most to Google is keeping all the evidence, discovery and information that these various proceedings uncover from being aggregated in ways that it could strengthen each of the other cases against them.

Simply Google has a lot to hide, despite its profession of supporting all things openness.

What most law enforcement may not appreciate is the extraordinary lengths that Google will go to in order to keep information about its wrongdoing from the public and other litigants against Google. Please read the analysis by the Reporters Committee for the Freedom of the Press, entitled "Uncivil Secrecy" by Kristen Rasmussen, if one is skeptical of this overall assessment of Google's legal evidence-suppression strategy.

Google's settlement strategy is a form of a divide-and-conquer strategy in dealing with the scores of legal actions going on against Google. If they can minimize public knowledge of their wrongdoing, and be notoriously bad in cooperating with discovery, they can discourage lawsuits and more easily defeat the ones that hang tough.

To the extent that law enforcement is eager to settle with Google rather than prosecute, it is complicit in keeping evidence of Google's wrongdoing out of the public domain, making it harder to enforce the law against Google in the future.

Simply, settlements may be appropriate when the accused has a clean record and there is little likelihood of recidivism, but they are not appropriate when they effectively thwart the system of justice.

The EU which is currently in settlement negotiations with Google, and the FTC, which may be if political pressure is brought to bear to do so, need to appreciate that Google is not a normal target of prosecution, it is extraordinarily adept legally and politically in gaming, delaying, denying and short-circuiting the justice system.

In short, settling with Google will only postpone the day that law enforcement will have to fully prosecute Google to the full extent of the law.